On October 20, 2011, the Federal Trade Commission (“FTC”) and the Department of Justice (“DOJ”) (collectively the “Agencies”) issued the final version of their joint policy statement setting forth the Agencies’ guidance regarding the application of the antitrust laws to the formation of accountable care organizations (“ACOs”) under the Patient Protection and Affordable Care Act and the Health Care and Education Reconciliation Act (together, the “Affordable Care Act”).  The Final Statement is similar in most aspects to the proposed policy statement issued by the FTC and the DOJ in March of 2011.  The most significant change between the Final Statement and the proposed  statement is that the Final Statement no longer requires a mandatory antitrust review of proposed ACOs with larger shares of common services provided by ACO participants.  The Final Policy Statement (1) confirms that an ACO that satisfies CMS’s criteria for participating in the Medicare Shared Savings Program is sufficiently integrated to qualify for analysis under the rule of reason in determining its competitive impact; (2) identifies specific criteria that will be used by the Agencies to calculate an ACO’s share of its market for purposes of evaluating the competitive impact of the ACO and commits to the provision of data to assist ACOs in making those calculations; (3) creates an antitrust “safety zone” for ACOs with smaller shares of common services offered in a Primary Service Area; and (4) provides for expedited review of the likely competitive impact of newly formed ACOs.

  1. Background The Affordable Care Act promotes the formation of ACOs, which the Affordable Care Act describes as organizations of providers that take responsibility for improving the health status, efficiency, and experience of care for a defined patient population.  ACOs are intended to promote cooperation among providers in managing and coordinating patient care.  While this coordination could benefit consumers, the Agencies recognize that ACOs also might reduce competition and harm consumers through higher prices or lower quality of care.  The Policy Statement is intended to protect consumers from potential anticompetitive harm, while allowing ACOs to achieve the anticipated efficiencies.

An ACO that satisfies the requirements of the Affordable Care Act may enter into an agreement with CMS to participate in the Medicare Shared Savings Program and share in a portion of any savings created by the ACO, if it meets certain quality performance standards.  The Policy Statement recognizes that the formation of ACOs to serve Medicare patients through the Shared Savings Program may also generate similar opportunities for ACOs to serve commercially insured patients.  The Agencies will apply the same antitrust analysis to ACOs that serve both Medicare and commercially insured patients, provided that the ACO “uses the same governance and leadership structure and the same clinical and administrative processes as it uses to qualify for and participate in the Shared Savings Program.”  

  1. Applicability of the Policy Statement The draft statement limited application of the enforcement policies to collaborations formed after March 23, 2010 (the date of enactment of the Affordable Care Act).  The final statement applies to all collaborations of otherwise independent providers and provider groups that are seeking to participate in the Shared Savings Program.  The Policy Statement does not apply to mergers, nor does it apply to fully integrated entities seeking to participate in the Shared Savings Program, such as a hospital system with a wholly-owned employed physician practice.
  2. Application of Rule of Reason Analysis to ACOs that Satisfy CMS’s Eligibility Criteria The single most important determination to be made with respect to physician networks and physician/hospital organizations under the Agencies’ Statements of Antitrust Enforcement Policy and Health Care (“Health Care Statements”), is whether a collaboration among otherwise competing physicians or hospitals is governed by the rule of reason, or considered a per se price fixing arrangement.  Under the Health Care Statements, if providers are sufficiently financially or clinically integrated and the agreement is reasonably necessary to accomplish the pro-competitive benefits of the collaboration, then the rule of reason would apply. 

The Policy Statement establishes a bright line for applying a rule of reason analysis: a CMS-approved ACO will be governed by the rule of reason.  The Affordable Care Act provides that ACOs must include: (1) a formal legal structure that allows the ACO to receive and distribute payments for shared savings; (2) a leadership and management structure that includes clinical and administrative processes; (3) processes to promote evidence-based medicine and patient engagement; (4) reporting on quality and cost measures; and (5) coordinated care for beneficiaries.  To the extent that an ACO meets the CMS criteria for participation in the Shared Savings Program, the Agencies have also stated that if the ACO provides the same or essentially the same services utilizing the same structure in the commercial market, then the rule of reason will also apply to the ACO’s activities in the commercial market.

This approach reflects the Agencies’ determination that a bona fide ACO that meets the CMS’ criteria will necessarily incorporate the practices, organizational structure, monitoring and enforcement mechanisms, incentives, etc., that the Agencies have previously stated are characteristics of a clinically integrated system.

  1. Calculation of an ACO’s Share of Common Services The calculation of an ACO’s share of services provided by each ACO participant in its Primary Service Area (“PSA”) will be a key step in the determination of whether an ACO raises antitrust issues.  The Policy Statement focuses on “common services,” which are any services that are provided by two or more independent ACO participants.  The Policy Statement provides the following guidance for calculating an ACO’s PSA shares for common services:
  1. Identify each service provided by at least two independent ACO participants.  For physicians, a service is the physician’s primary specialty, as designated on the physician’s Medicare Enrollment Application.  Hospital inpatient services are identified by Major Diagnostic Categories.  Outpatient services will be defined by categories to be provided by CMS. 
  2. Identify the PSA for each common service for each participant in the ACO.  The PSA is defined as the lowest number of contiguous postal zip codes from which the participant draws at least 75% of its patients for that service.
  3. Calculate the ACO’s PSA share for each common service and each PSA in which at least two ACO participants serve patients for that service, based on Medicare data to be provided by CMS.1  

The Agencies propose to use an ACO’s PSA shares of common services as a proxy for market share.  A PSA is not equivalent to a relevant geographic market, and the Agencies do not use the term “market share” when discussing an ACO’s share of common services.  While many of the comments submitted in response to the proposed Policy Statement discussed the shortcomings of using PSA shares to evaluate the competitive impact of an ACO, the Agencies evidently opted for an approach that they believe will be easier and less expensive for applicants and the Agencies to apply.

  1. The Antitrust Safety Zone

The Agencies recognize that ACOs with smaller shares of common services are highly unlikely to raise significant competitive concerns and merit a presumption of per se legality.  Consistent with the safety zones recognized in the Health Care Statements for adequately integrated physician networks, the Policy Statement indicates that the Agencies will not challenge ACOs in which the combined share of common services is 30% or less in each participant’s PSA.  Any hospital or ambulatory surgery center participating in an ACO that qualifies for the safety zone must be non-exclusive to the ACO to fall within the safety zone, regardless of its PSA share.

The Policy Statements identify two exceptions that would permit an ACO to fall within the safety zone, even if the ACO’s share of services within a particular PSA exceeds 30%.  Under the “rural exception,” an ACO may include one physician per specialty from each rural county (as defined by the U.S. Census Bureau) covered by the ACO, even if the inclusion of any of these physicians causes the ACO’s share of any common service to exceed 30% in any ACO’s participant’s PSA for that service, provided that the rural physician contracts with the ACO on a non-exclusive basis.  Likewise, an ACO may include Rural Hospitals, i.e., a Sole Community Hospital or a Critical Access Hospital, as defined by the Medicare regulations, or any other acute care hospital located in a rural area that has no more than 50 acute care inpatient beds and is located at least 35 miles from any other inpatient acute care hospital, even if the inclusion of that hospital causes the ACO’s share of any common service to exceed 30% in any ACO’s participant’s PSA for that service.  Any rural hospital must contract with the ACO on a non-exclusive basis.

The Policy Statements also provide that the ACO may include a “dominant provider” with a greater than 50% share in its PSA, as long as no other ACO participant provides the same service as the dominant provider within the PSA, and the dominant provider contracts on a non-exclusive basis.  In addition, any ACO with a dominant provider cannot require a commercial payer to contract exclusively with the ACO or otherwise restrict the payer’s ability to contract with other ACOs or provider networks.

The Policy Statements further provide that if an ACO falls within the safety zone when it first contracts with CMS, it will continue to be considered a part of the safety zone even if the ACO later exceeds the 30% share limitation solely because it attracts more patients.  The Safety Zone will apply to a qualifying ACO’s participation in the Shared Savings Program and in the commercial market, provided the ACO uses the same structure and processes for both Medicare and commercially-insured patients.  The Agencies will not challenge ACOs that fall within the safety zone, absent extraordinary circumstances, such as collusion or improper exchange of competitively sensitive information for competing services outside of the ACO.

  1. ACO’s Outside the Safety Zone

The Agencies recognize that ACOs that exceed the 30% safety zone for any common service may be precompetitive and lawful.  ACOs that fall outside the safety zone are not required to seek clearance from one of the Agencies before qualifying for the Shared Savings Program.  However, the ACO bears the responsibility of ensuring that it complies with the antitrust laws.  The risk of antitrust challenge by the Agencies will rise as the market power of an ACO increases.  An ACO outside the safety zone can seek expedited Agency review, but if it chooses not to, the Policy Statement identifies four types of conduct, that if avoided, would reduce the likelihood of an antitrust investigation. 

  1. Preventing or discouraging commercial payers from directing patients to choose providers that do not participate in the ACO;
  2. Tying sales of the ACO’s services to the commercial payer’s purchase of other services from providers outside the ACO;
  3. Contracting with any ACO participant on an exclusive basis, except for primary care physicians; and
  4. Restricting a commercial payer’s ability to share costs, quality, efficiency and performance information with enrollees.

ACOs also are cautioned not to facilitate price-fixing or other collusion among competing ACO participants by preventing the exchange of competitively sensitive pricing or other data that could be used to set prices outside of the ACO.

  1. Expedited Agency Review The Agencies also have “committed” to provide an expedited review of newly formed ACOs (i.e., ACOs that, as of March 23, 2010, had not signed or jointly negotiated any contracts with private payers) within 90 days of submission of all required documents and information.  To obtain expedited review, the ACO must submit:
  1. The application and all supporting documents that the ACO submitted to CMS as part of its Shared Savings Program application;
  2. Documents discussing the ACO’s business strategies or plans to compete in the Medicare and commercial markets and the ACO’s likely impact on prices, costs or quality of service provided by the ACO;
  3. Documents discussing the level and nature of competition among ACO participants, and the competitive significance of the ACO and ACO participants in the markets they serve;
  4. Information sufficient to show
  1. The common services that two or more ACO participants provide;
  2. The PSA of each ACO participant, and PSA share calculations, or other data that show the competitive significance of the ACO or ACO participants;
  3. Restrictions that prevent ACO participants from obtaining information regarding prices that other ACO participants charge commercial payers that do not contract through the ACO;
  4. The identity of the five largest commercial health plans or other payers for the ACO’s services; and
  5. The identity of any other existing or proposed ACO known to operate or planning to operate in any market in which the ACO will provide services.

Within 90 days of receiving all of the above documents and information, unless more information is requested, the reviewing Agency (the Policy Statement does not indicate how the FTC and the DOJ intend to assign responses to requests for expedited reviews), will advise the ACO that the ACO (1) does not likely raise competitive concerns; (2) potentially raises competitive concerns; or (3) likely raises competitive concerns.  All request letters and responses will be public documents.